(b)lines Ask the Experts – Changes to Consider As Plan Size Grows

I work for a rapidly-growing nonprofit that just two years ago had a handful of employees; now, we have more than 100. We have sponsored an Employee Retirement Income Security Act (ERISA) 403(b) plan since the inception of the firm. Are there areas of plan governance to which a growing firm such as ours should pay particular attention?”

Michael A. Webb, vice president, Cammack Retirement Group, and David Levine, with Groom Law Group answer:  

This is an excellent question, and indeed there are several areas of retirement plan operation that warrant special consideration for a growing firm such as yours. These include, but are not limited to, the following:               

  • Enhanced annual reporting—Generally, retirement plans with more than 100 participants must complete a much more detailed annual Form 5500 return than smaller plans. And, unlike for small plans, the return must include an audit report for the plan’s financial statements from an independent qualified public accountant. An accounting firm must be hired to conduct the audit, though the cost of the audit can be paid for by the plan. There will be also be an expenditure of staff time to answer the many inquiries the accounting firm will have as part of the audit process. Generally, as your plan grows in size, the audit becomes more complicated, resulting in greater expenses as well as a greater expenditure of time.
  • Recordkeeper Request for Proposal (RFP)—Normally you would not be conducting a vendor search for a new recordkeeper after only two years, but recordkeeping is a niche market, and the recordkeeper who was just fine when you were a five-employee plan may no longer be suitable now that your plan is larger. Thus, unless your contract term with the recordkeeper is greater than two years, you may wish to consider an RFP at this time
  • Outside experts—Though always prudent to engage an ERISA attorney and a retirement plan adviser due to the complex regulatory requirements of retirement plans, many smaller plans do not engage such personnel, due presumably to the expense. However, if your retirement plan assets have kept pace with your growth, your retirement plan liability is much larger now, and it would be prudent to hire independent experts to assist in managing that risk
  • Nondiscrimination testing—As your salary and other employee demographics change, this may have an effect (positive or negative) on the annual nondiscrimination testing that is performed for the plan. If you encounter test failures, you may wish to consider one of the many design-based safe harbors that are available to avoid testing, including those that incorporate automatic enrollment, if you have not done so already.

Thank you for your question!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.    

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to rmoore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.